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Wednesday, 31 August 2016

The dollar rose to a one-month high against the yen on Wednesday as investors reversed the bets they had made on speculation that the U.S. Federal Reserve would not hike interest rates anytime soon.

That reversal saw the dollar, which was at around 100.500 yen at the start of the week, extend an overnight rally as far as 103.230 yen , its highest since July 29.

Dogged by rate hike uncertainty, the dollar dropped to as low as 99.550 yen in mid-August and came within sight of 99.000 yen -- a 2-1/2-year low struck in June against the safe-haven Japanese currency after the Brexit vote.

The euro EUR= was little changed at $1.1153, hovering near a three-week low of $1.1133 plumbed on Tuesday. The common currency was poised to lose 0.2 percent on the month.

The greenback has been on a bullish footing since Friday's comments by Fed Chair Janet Yellen revived expectations the central bank could hike rates as early as September.

Upbeat data released on Tuesday helped the dollar extend gains, with the Conference Board saying its consumer confidence index rose to an 11-month high in August. Other data showed that U.S. house price growth moderated in June but was still strong. ECONUS

"Despite much previous excitement over the yen's potential strength, it failed to convincingly crack the 100 yen (per dollar) mark. This, combined with the latest Fed rate hike views, is prompting participants to square some of their yen longs," said Masashi Murata, senior forex strategist at Brown Brothers Harriman in Tokyo.

Yen bulls were also kept in check after Japan's Chief Cabinet Secretary Yoshihide Suga told Reuters on Tuesday that the government will respond "appropriately" to unwelcome yen gains.

Analysts believe the reversal of yen longs could continue for a while, since investors had built up significant positions betting on the Japanese currency rising.

Latest data from the Commodity Futures Trading Commission showed that speculators raised net long positions on the yen for the week ended Aug.23 to their highest since early July.

The speculators' aggregate net long position was the smallest since early July, suggesting the greenback has more room to rise against other currencies.

The dollar index .DXY was little changed at 95.956 after rising to 96.143 overnight, its highest since August 9. It was still on track to lose about 1 percent in August after falling mid-month to a near two-month low of 94.077.

Attention has switched to Friday's U.S. August non-farm payrolls report and with it a chance to assess whether the U.S. economy is robust enough to withstand monetary tightening.

But investors will first digest the ADP employment data and the Chicago purchasing managers' index due later on Wednesday.

"The 104 level will come into view for dollar/yen if the U.S. ADP employment report beats expectations," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

He noted, however, that dollar/yen may have gone too far, given some risk aversion from falls in crude oil and U.S. stocks and flat Treasury yields.

The Australian dollar edged up 0.2 percent to $0.7526 on bargain hunting after its overnight slide to a one-month trough of $0.7500 against the broadly stronger U.S. currency.

The Aussie was set to lose 1 percent versus the dollar this month, although it had risen to a near four-month high of $0.7760 early in August with Australia's relatively higher yields a draw for investors escaping negative rates in the euro zone and Japan.

The U.S. job market is nearly at full strength and the pace of interest rate increases by the Federal Reserve will depend on how well the economy is doing, Fed Vice Chairman Stanley Fischer said on Tuesday.

In an interview with Bloomberg TV, Fischer did not comment on the timing of the next Fed rate hike but said "we choose the pace on basis of data," and that U.S. "employment is very close to full employment."

Fed Chair Janet Yellen said on Friday she thought the case had grown stronger in recent months for an interest rate increase, remarks that Fischer later that day said were consistent with a view that the U.S. central bank might raise rates at its next policy meeting in September.

Asked about the dollar on Tuesday, Fischer said the currency's strength affected U.S. inflation and company profits but improvements in the labor market showed the economy had withstood this headwind.

The Fed has signaled since March it would lift rates twice this year, but investors have been skeptical.

Prices for Fed funds futures on Tuesday suggested they expect about a 20 percent chance of a hike next month and just over even odds for such a move in December . The Fed also has a policy meeting scheduled for early November.

The U.S. Labor Department's monthly employment report on Friday is expected to show the economy added 180,000 jobs in August, according to the median forecast in a Reuters poll.

Tuesday, 30 August 2016

When hackers penetrated a secure authentication system at a bitcoin exchange called Bitfinex earlier this month, they stole about $70 million worth of the virtual currency.

The cyber theft -- the second largest by an exchange since hackers took roughly $350 million in bitcoins at Tokyo's MtGox exchange in early 2014 -- is hardly a rare occurrence in the emerging world of crypto-currencies.

New data disclosed to Reuters shows a third of bitcoin trading platforms have been hacked, and nearly half have closed in the half dozen years since they burst on the scene.

This rising risk for bitcoin holders is compounded by the fact there is no depositor's insurance to absorb the loss, even though many exchanges act like virtual banks.

Not only does that approach cast the cyber security risk in stark relief, but it also exposes the fact that bitcoin investors have little choice but to do business with under-capitalized exchanges that may not have the capital buffer to absorb these losses the way a traditional and regulated bank or exchange would.

"There is a general sense in the bitcoin community that any centralized repository is at risk," said a U.S.-based professional trader who lost about $1,000 in bitcoins when Bitfinex was hacked. He declined to be named for this article.

"So when investing, you always have that expectation at the back of your head. I lost a small amount compared to the others, but I know of traders who lost millions of dollars worth of bitcoins," the trader said.

The security challenge for the bitcoin world does not appear to be letting up, according to experts in the currency.

"I am skeptical there's going to be any technological silver bullet that's going to solve security breach problems. No technology, crypto-currency, or financial mechanism can be made safe from hacks," said Tyler Moore, assistant professor of cyber security at the University of Tulsa's Tandy School of Computer Science who will soon publish the new research on the vulnerability of bitcoin exchanges.

His study, funded by the U.S. Department of Homeland Security and shared with Reuters, shows that since bitcoin's creation in 2009 to March 2015, 33 percent of all bitcoin exchanges operational during that period were hacked. The figure represents one of the first estimates of the extent of security breaches in the bitcoin world.

In contrast, data from the Privacy Rights Clearinghouse, a non-profit organization, showed that of the 6,000 operational U.S. banks, only 67 banks experienced a publicly-disclosed data breach between 2009 and 2015. That's roughly 1 percent of U.S. banks.

Among the world's stock exchanges, however, security breaches are much higher, with hackers attracted to the large pools of cash moving in and out of these trading venues. The latest survey of 46 securities exchanges released three years ago by the International Organization of Securities Commissions and World Federation of Exchanges found that more than half had experienced a cyber attack.

Moore collaborated on the research with Nicolas Christin, associate research professor at Carnegie Mellon University and Janos Szurdi, a Ph.D. student also at Carnegie.

In 2013, Moore and Christin wrote a research paper on security risks surrounding bitcoin exchanges when Moore was still a professor at Southern Methodist University. That research entitled “Beware of the Middleman: Empirical Analysis of Bitcoin Exchange Risk” was peer-reviewed and presented at the 17th International Financial Cryptography and Data Security Conference in Okinawa, Japan in 2013.

In the most recent study, the rate of closure for bitcoin exchanges in Moore's research edged up to 48 percent among those operating from 2009 to March 2015. Hacking did not necessarily trigger the closure in each case.

"A 48 percent closure is not acceptable, but not surprising given that bitcoin is a new technology," said Richard Johnson, vice president of market structure and technology at Greenwich Associates. Johnson has written reports on risk and security issues in the crypto-currency world.

Profitability is a big problem for bitcoin exchanges, with many of them unable to generate enough volume to keep afloat.

Bitcoin exchanges overall could be launched for as low as $100,000 up to $1 million, said Erik Voorhees, founder and chief executive officer of digital currency exchange ShapeShift. That is a fraction of what U.S. forex exchanges' are required to put up.

Retail FX trading platform FXCM, for instance, is required by the Commodity Futures Trading Commission to have at least $25 million in capital at all times.

RECOVERING LOSSES

A key factor tied to the risk posed by exchanges is whether customers are reimbursed after closure or after the loss of bitcoins following a hack. Each closure and breach have been handled differently, but Tandy's Moore said the risk of losing funds stored in exchanges are real.

In the case of Bitfinex, which is now up and running after the hack August 2, customers lost 36 percent of the assets they had on the platform and were compensated for the losses with tokens of credit that would be converted into equity in the parent company.

At Tokyo's MtGox, customers have yet to recover their investments more than two years after closure.

Experts say trading venues acting like banks such as Bitfinex will remain vulnerable. These exchanges act as custodial wallets in which they control users' digital currencies like banks control customer deposits.

When customers' checking accounts are hacked, there is always a third party at the bank that can step in to deal with the theft.

Not so with bitcoin, said Seattle-based Darin Stanchfield, chief executive officer at KeepKey, a hardware wallet provider. He expects more of these attacks to happen despite efforts to improve security at bitcoin exchanges.

"Unfortunately because of its irreversible nature, bitcoin requires near perfect security."

Wall Street rose on Monday morning, helped by financial stocks that gained a day after Federal Reserve Chair Janet Yellen said the case for an interest rate hike had strengthened.

Yellen, addressing a gathering of global central bankers on Friday, said the central bank was close to meeting its goals of maximum employment and stable prices, while describing consumer spending as "solid".

Yellen gave little indication of when the Fed would move but Vice Chairman Stanley Fischer suggested that a move as soon as next month could be possible.

"It's a delicate yet deliberate delivery of reality," said Andre Bakhos, managing director at Janlyn Capital. "Rates are going to move higher, based on the economic evidence, but the "when" of the move is up in the air."

Financial stocks, which stand to gain the most in a higher interest rate environment, rose as traders raised bets on a hike in the coming months.

Monday, 29 August 2016

The dollar stood tall in Asian trading on Monday, after Federal Reserve Chair Janet Yellen's upbeat comments on the U.S. economy prompted traders to raise their expectations of an interest rate increase.

The dollar added 0.4 percent to 102.24 yen JPY= after earlier rising as high as 102.28, its strongest since Aug. 12.

The euro was flat at $1.1202 EUR=, while the dollar index, which tracks the greenback against a basket of six rivals, was down slightly on the day at 95.519 .DXY. But earlier in the session, it rose to 95.608, its highest since Aug. 16.

At the Fed's annual gathering for global central bankers in Jackson Hole, Wyoming, Yellen said the case for an interest rate hike has strengthened in recent months as the labor market and economy have improved.

Yellen offered no hints on the timing of any hike, but Fed Vice Chair Stanley Fischer said Yellen's speech was consistent with expectations for possible interest rate increases this year.

"It wasn't so much what Yellen said, but what Fischer said afterward that really moved markets," said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.

Fischer, the Fed's No. 2 policymaker, said Friday's non farm payrolls report for August will likely weigh on the decision over a hike.

"I think the evidence is the economy has strengthened... (with) the big numbers are better than they have been for some time," Fisher said of the economic data.

"If the payrolls figure is strong, the dollar could move toward a test of the 105 level against the yen," said Mitsuo Imaizumi, chief currency strategist at Daiwa Securities in Tokyo.

Interest rate futures indicated the market priced in more than a 30 percent chance of a hike in September from 18 percent before Yellen and Fischer spoke, according to CME Group's FedWatch tool. For December, the odds rose to more than 60 percent, from 57 percent Friday morning.

Despite a chorus of hawkish comments from Fed officials in recent sessions, currency speculators trimmed bets on the dollar for a fourth straight week in the week ended Aug. 23, reducing net dollar-long positions to their lowest since early July.

Concerns about the strength of the U.S. economy remain, and were underscored by Friday's second estimate of U.S. gross domestic product that showed second-quarter growth was slightly lower than previously thought.

Sterling, meanwhile, edged down 0.1 percent to $1.3118 GBP, after notching a three-week high of $1.3280 on Friday following solid UK growth and business investment figures.

The data showed the British economy grew 0.6 percent in the second quarter and was up by 2.2 percent on year, in line with preliminary readings and forecasts. Business investment unexpectedly rose in the April-June period compared with the previous three months.

The case for raising U.S. interest rates has strengthened in recent months because of improvements in the labour market and expectations for moderate economic growth, Federal Reserve Chair Janet Yellen said on Friday.

Yellen did not indicate when the U.S. central bank might raise rates, but her comments reinforced the view that such a move could come later this year. The Fed has policy meetings scheduled in September, November and December.

Speaking at a three-day international gathering of central bankers in Jackson Hole, Wyoming, Yellen said the "U.S. economy was nearing the Federal Reserve's statutory goals of maximum employment and price stability."

"In light of the continued solid performance of the labour market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months," Yellen said in prepared remarks.

She added that the Fed still thinks future rate increases should be "gradual."

The Fed raised rates in December, its first hike in nearly a decade, but it has held off further increases so far this year due to a global growth slowdown, financial market volatility and generally tepid U.S. inflation data.

Investors currently see an 18 percent probability the Fed will raise rates at its September policy meeting and a 53 percent chance of an increase in December, according to CME Group's FedWatch tool.

Yellen's comments, by failing to lay out a clear roadmap for what the Fed needs to see to raise rates, will likely not convince some investors that a rate increase is imminent, in part because Fed policymakers are seen as sharply divided over whether to increase rates soon or take a more cautious approach.

Yellen was speaking on Friday at a Fed conference on designing new monetary policy frameworks, with central bankers eager to find new ways to stimulate economies even after they have cut rates to near zero and flooded banks with money.

She devoted much of her speech to outlining how the Fed may deal with future recessions now that many economists and Fed officials believe that an ageing population and other dynamics appear to be slowing U.S. economic growth over the long term.

Because slower growth means future U.S. interest rates will likely also need to be lower on average, some analysts have suggested that the Fed will have less room to fight future recessions because there will be less room to cut rates.

Such a view is "exaggerated," Yellen said, because the Fed will be able to use bond purchases and forward guidance to ease conditions. It may also want to explore other options, including broadening the range of assets it can purchase, raising the inflation target, or targeting nominal GDP, she said.

Friday, 26 August 2016

The dollar remained on tenterhooks on Friday, on track for a modest weekly rise ahead of Federal Reserve Chair Janet Yellen's eagerly awaited speech that some believe could provide clarity on whether U.S. interest rates will rise this year.

The dollar index, which gauges the greenback against a basket of six major counterparts, edged down 0.1 percent to 94.718 .DXY, on track for a modest gain of 0.2 percent for the week.

Later on Friday, Yellen will deliver the keynote speech at a global central bank gathering in Jackson Hole, Wyoming. She could send a clear signal that the Fed is gearing up for a hike this year, though many analysts believe she will stick to her less concrete stance that monetary policy is data-dependent and a hike is possible.

"The anticipation is a bit too much. She is one of the more pragmatic and balanced speakers," said Jennifer Vail, head of fixed income research at U.S. Bank Wealth Management in Portland, Oregon.

"I think she will leave the door open for a rate hike sometime this year, but I don't see the Fed actually moving until December," she said.

Regional Fed presidents have pushed a hawkish message in recent weeks, which Vail said showed they were "trying to get the market expectations close to where the Fed is headed, so when they do execute, it's not a shock to the rates market."

Kansas City Fed President Esther George said on Thursday that it is time for the Fed to raise U.S. rates gradually, given progress on employment and inflation.

"The issue of overheating of the economy is being discussed within the Fed board," Fed Vice Chair Stanley Fischer told a room of labor activists who met with Fed officials to press them not to raise interest rates.

"Everything that's being argued here is being argued in the board as well," said Fischer.

Data overnight reinforced recent upbeat assessments of the U.S. economy. New orders for U.S. manufactured capital goods rose for a second straight month in July as demand for machinery and a range of other products picked up, while the number of Americans filing for unemployment benefits unexpectedly dropped.

After the release of the U.S. data, futures markets were indicating a 24 percent chance the Fed will hike rates at its policy meeting next month and a roughly 57 percent chance of an increase in December, according to the CME Group's FedWatch.

The dollar inched down 0.1 percent against the yen at 100.46 yen, and was flat against the euro at $1.1290 EUR=. It was on track for a 0.2 percent rise against the former and a 0.3 percent dip against the latter for the week, with major currency pairs largely rangebound ahead of Yellen's speech.

"The market may react to one word, or one phrase, but I don't think her speech will bring a new dollar/yen trend," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

"If Yellen shows less confidence about the U.S. economy, maybe people would like to buy the yen more, but I also think there are longterm investors who step in to buy dollars whenever it falls below 100 yen, so I think it will stay around current levels for a while," Murata said.

Japanese data released early on Friday added to evidence that the Bank of Japan has reason to increase its stimulus next month, as the economy slips back toward deflation.

Japan's core consumer prices fell for a fifth straight month and marked the biggest annual drop in more than three years in July, government data showed on Friday, keeping the central bank under pressure to expand an already massive stimulus program.

At its last meeting in July, the BOJ disappointed some investors by refraining from increasing its Japanese government bond purchases even as the government gears up to issue more debt to fund its latest stimulus drive.

The disappointment pushed JGB yields sharply higher, and underpinned the yen. Some analysts say the Japanese currency could be in for a bout of volatility and may even strengthen further in September, building on its recent boost from the rise in JGB yields.

While markets wait for Janet Yellen's latest message about the direction of monetary policy, the Federal Reserve chief and her colleagues already have one for politicians: the U.S. economy needs more public spending to shift into higher gear.

In the past few weeks, Yellen and three of the Fed's other four Washington-based governors have called in speeches and Congressional hearings for government infrastructure spending and other efforts to counter weak growth, sagging productivity improvements, and lagging business investment.

The fifth member has supported the idea in the past.

The Fed has no direct influence over fiscal policy and its officials traditionally refrain from discussing it in detail. Having its top officials - from Yellen to former investment banker and Bush administration official Jerome Powell - speak in one voice sends a strong signal to the next president and Congress about the limits they face in setting monetary policy and what is needed to improve the economy's prospects.

The Fed's annual conference in Jackson Hole, Wyoming, where Yellen speaks on Friday, is due to focus on how to improve central banks' "toolkit," but the unanimous message from the Fed's top policymakers is that those tools are not enough.

"Monetary policy is not well equipped to address long-term issues like the slowdown in productivity growth," Fed vice chair Stanley Fischer said on Sunday. He said it was up to the administration to invest more in infrastructure and education.

TRILLION DOLLAR HOLE

Behind Fischer's statement lies a troubling feature of the recovery - business investment has fallen below levels in prior years and companies seem to have stopped responding to low borrowing costs.

As a share of gross domestic product, U.S. annual business investment since 2008 has averaged nearly a full percentage point below the previous decade's average, government data shows. Reuters calculations indicate the investment shortfall has blown a hole in annual GDP that has grown to as much as one trillion dollars a year compared with what it would have been if the previous trend continued.

Little suggests a rebound any time soon. Fixed business investment has fallen in three successive quarters as a share of GDP. Researchers and analysts blame the slide on everything from doubts about future economic growth to distortions caused by Fed policy itself in helping boost the value of financial assets.

Companies have run up share buybacks to record levels of around half a trillion dollars a year, and held onto record amounts of cash, despite cheap financing that should in theory spur long-term investment. Research by Fed board economists Steven A. Sharpe and Gustavo Suarez suggest a reason: executives are putting little stock in interest rates when making investment decisions, and are not adjusting expected rates of return to fit the emerging low-growth world.

Based on data collected from chief financial officers, their study found the internal rate of return needed to justify capital projects has "hovered near 15 percent for decades," and barely budged even as global interest rates have fallen. Such targets made sense during spells of strong growth, but may be inconsistent with the current low-growth, low-interest rate environment, and hold back corporate spending, the Fed economists argue.

That challenges the core monetary policy notion that low short-term rates spur investment by making long-term returns more attractive.

"I have started to wonder, and many wonder, as rates stay at zero, whether that may not be true anymore,” former Fed Governor Jeremy Stein told Reuters.

The situation has perplexed analysts, with some suggesting executives may be out of synch with a low-growth world.

“I am not sure that people’s notion of an adequate return on equity has come down as much as the riskless rate,” said Thomas Mercein, global head of debt capital markets for Credit Suisse.

The Jackson Hole conference will likely take stock of several unconventional solutions proposed as a way of breaking out of the cycle of subdued demand, weak investment and low growth that has followed the 2007-2009 recession.

U.S. and global central bankers have brought into the mainstream such ideas as GDP targeting or "helicopter" cash injections to generate demand and inflation, and have been testing negative interest rates in Europe and Japan.

Fiscal policy is not on this year's agenda, which is dedicated to the details of monetary policy operations. But the idea that governments need to pick up the slack with infrastructure spending or other initiatives has been gaining traction among central bankers.

Well-targeted public investment, the argument goes, could in effect pay for itself through higher productivity and growth, and in doing so make any additional public debt comparatively less onerous.

RARE AGREEMENT

In the United States, the need for investing in the nation's ageing infrastructure is a rare point where both presidential candidates seem to agree. Democrat Hillary Clinton is proposing a $275 billion (£207.85 billion) package; Republican Donald Trump is calling for about twice that.

Not everyone agrees though, that more public spending is the best cure, or that an infrastructure programme would pinpoint projects with a positive return.

“Economic policy should bolster private investment. Yet, it is striking that most academics and policymakers are pushing another big government spending stimulus package," said former Fed governor and Hoover Institution fellow Kevin Warsh.

However, there is broad agreement that, for now, private investment may remain in the doldrums - unless it is clear the economy is picking up.

Bill Lutz, chief financial officer of Illinois-based industrial services provider Advanced Technology Services, said the still low factory utilization and doubts about growth and demand have set a high bar for any private investment that was not necessary to maintain output or offered compelling savings.

"You'll find a way to finance if it is real and strategic," Lutz said. "Whether the interest rate is a percent higher or lower is secondary."

Thursday, 25 August 2016

The dollar was range-bound in illiquid Asian trade on Thursday as major currencies continued to tread water ahead of the global central bankers' gathering in Jackson Hole, Wyoming, at which Federal Reserve Chair Janet Yellen may offer new clues on U.S. monetary policy.

Fed officials including Vice Chairman Stanley Fischer and New York Fed President William Dudley have recently prompted some investors to raise their bets that the Fed is poised to hike rates again sooner rather than later, and some predict Yellen to echo their signals.

Futures markets on Wednesday were indicating an 18 percent chance the U.S. central bank would hike rates at its policy meeting next month, and a roughly 50 percent chance of a rate increase in December, according to CME Group's FedWatch tool.

"A portion of the market is expecting hawkish overtones after Dudley," said Sue Trinh, senior currency strategist at RBC Capital Markets in Hong Kong. "So to that extent, we're expecting some would be disappointed if she ended up being more dovish than some people may have expected."

The dollar was flat at 100.44 yen , holding above the 100-yen level under which it has dipped in recent sessions.

The currencies have traded in a narrow 99.55-102.83 band this month, and could move back toward the upper end of that range depending on Yellen's remarks, analysts say.

"The dollar has finally caught a bid," wrote Kathy Lien, managing director of FX strategy at BK Asset Management, who said in a note that the U.S. unit was likely poised for a stronger recovery that could take it to 102 against the yen.

"It probably won't happen on the back of Yellen's comments but it could happen over the next few weeks as long as 99.00 holds," said Lien.

Also weighing on the yen were growing expectations that the Bank of Japan will decide to take additional stimulus steps at its next meeting in September, when it will review its policies against a backdrop of growing doubt that the BOJ's target of 2 percent inflation target is within reach.

Japan's government kept its assessment of the economy unchanged in August but offered a slightly more downbeat view on consumer inflation than last month, as prices slid on weak household spending and the strong yen pushed down import costs.

The Cabinet Office said in its monthly report for August that consumer prices were flat - a gloomier view than last month when price rises were slowing.

A Reuters poll on Thursday showed that a majority of economists expects the Bank of Japan will ease policy further next month, though about 40 percent of analysts surveyed said they expected the central bank to keep monetary policy unchanged.

The euro inched up 0.1 percent to $1.1275, pushing down the dollar index, which tracks the greenback against a basket of six major rivals, to 94.715 . 0.1 percent lower on the day.

Wall Street was lower on Wednesday, led by declines in technology and defensive stocks as investors weighed up the possibility of a rate hike in the coming months.

The market is squarely focused on Federal Reserve Chair Janet Yellen's speech at Jackson Hole, Wyoming on Friday when she is expected to give a steer on the direction of monetary policy.

Recent hawkish comments from some Fed officials, including Vice Chairman Stanley Fischer, have raised expectations that Yellen might signal a hike in September.

All 10 major S&P 500 indexes were trading lower. The financials sector .SPSY, which stands to benefit from higher rates, posted the smallest decline, of 0.07 percent.

The bigger decliners were utilities .SPLRCU, consumer staples and telecom services, defensive sectors that have led Wall Street's rally this year as expectations of a rate hike kept getting pushed out.

While Wall Street is trading near records levels, volumes have been below average in the past few sessions as the U.S. earnings season winds down and as traders avoid major bets ahead of a firmer handle on monetary policy.

"Caution is certainly warranted before Yellen's speech. We know its going to move the market, we just don't know which way," said Matthew Tuttle, chief investment officer of Tuttle Tactical Management in Connecticut.

"The biggest risk right now is that she comes out and makes it look like September is squarely on the table."

At 11:06 a.m. ET the Dow Jones Industrial Average .DJI was down 42.35 points, or 0.23 percent, at 18,504.95.

The S&P 500 .SPX was down 4.62 points, or 0.21 percent, at 2,182.28.

The Nasdaq Composite .IXIC was down 5.94 points, or 0.11 percent, at 5,254.14.

The technology index , which propelled the Nasdaq to a intraday record on Tuesday, was down 0.35 percent and the biggest drag among the 10 S&P sectors.

Wednesday, 24 August 2016

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Asian stocks edged lower on Wednesday as strong U.S housing data overnight increased the chances of an interest rate increase in coming months, prompting some investors to take profits, while oil prices slipped after a surprise jump in U.S. inventories.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.4 percent in early trade. It has risen more than 14 percent since late June, and hit a 1-year high last week, helped by increased interest in emerging markets after a shock vote by Britain to exit the European Union.

Since late July, emerging market funds have seen net inflows of some $13.2 billion, more than developed market funds in terms of assets under management, according to Institute of International Finance data.

Within the region, Hong Kong stocks .HSI slid 0.8 percent on Wednesday as investors sold financials, while Japanese markets led gainers, rising 0.6 percent.

"China's stock markets have benefited from Brexit-related capital flows but that impact is fading and we are cautious on the market outlook given increasing signs of economic weakness," said Francis Cheung, head of China and Hong Kong strategy at brokerage CLSA.

While Hong Kong's benchmark index has rallied 18 percent since late June, on a price-to-earnings basis, it still remains around one standard deviation below a 20-year average, indicating investors are not fully convinced about the durability of the gains.

Compounding the anxiety, recent Chinese economic data has been anything but cheerful. Both exports and imports fell more than expected in July and government officials have repeatedly said the economy is facing downward pressure.

However, the pessimism around China has been balanced by growing optimism around emerging markets as some investors such as bond giant PIMCO are slowly turning more bullish, citing a rebound in growth and improving economic fundamentals.

On a year-to-date basis, MSCI's emerging market index .dMIEF00000PUS has outperformed the world index .dMIWD00000PUS on a total returns basis, with most of the gains seen since June, according to Thomson Reuters Datastream.

U.S. housing-related stocks .HGX jumped 2 percent on Tuesday after the Commerce Department reported new U.S. single-family home sales soared unexpectedly in July to near nine-year highs. Stocks in both Europe and the U.S. ended higher.

Global central bankers gather in Jackson Hole, Wyoming, late this week with investors focused on a speech by Fed Chair Janet Yellen on Friday, hoping for more clues on policy.

"At this juncture, the consensus is coalescing around the view that Yellen will bait the market enough to sustain further rate normalization expectations for this year without telegraphing a September hike," analysts at OCBC in Singapore wrote in a note.

In currency markets, the spike in new U.S. home sales pushed the dollar to 94.6 against a trade-weighted basket of currencies after a drop of more than 2 percent ar this month.

The Australian dollar looked set to add to recent gains as Australia's relatively higher interest rates attracted overseas investors.

Oil prices tumbled, reversing early gains, after the American Petroleum Institute reported on Tuesday that U.S. crude inventories rose by a surprising 4.5 million barrels last week.

Brent crude fell 1 percent to $49.46 a barrel, while U.S. West Texas Intermediate crude slipped 1.3 percent to $47.48 in early deals.

Oil prices fell over 1 percent on Tuesday, with Goldman Sachs warning that August's price rally had been overdone and that a proposed oil production freeze at current near-record levels would not help rein in an oversupplied market.

International Brent crude oil futures were trading at $48.54 per barrel at 0235 GMT, down 62 cents, or 1.26 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude was down 76 cents, or 1.6 percent, at $46.65 per barrel.

Analysts said the falls were a result of an overdone price rally this month which lifted crude by over 20 percent between the beginning of the month and late last week.

Since then, prices have fallen back by more than 3.5 percent.

"While oil prices have rebounded sharply since Aug. 1, we believe this move has not been driven by incrementally better oil fundamentals, but instead by headlines around a potential output freeze as well as a sharp weakening of the dollar (and exacerbated by a sharp reversal in net speculative positions)," Goldman Sachs said.

The bank said a proposal by members of the Organization of the Petroleum Exporting Countries (OPEC) and other producers like Russia to freeze output at current levels "would leave production at record highs" and therefore do little to bring supply and demand back into balance.

Goldman also said the likelihood of a deal "may not be high" due to disputes between OPEC members Saudi Arabia and Iran as well as uncertainty over non-OPEC producing giant Russia's willingness to cooperate.

The bank said it expected crude oil prices of between $45 and $50 per barrel "through next summer", but warned that "a sustainable pick-up in disrupted production would lead us to lower our oil price forecast with WTI prices ... to average $45 per barrel".

French bank BNP Paribas said that "the narrative of a rapid re-balancing of the oil market has ... met a few stumbling blocks" as "some of Q2's disrupted supply returned, OPEC's collective output rose, and U.S. shale oil is being spared the dramatic year-on-year declines forecast earlier in the year".

Tuesday, 23 August 2016

A survey of Japanese manufacturing activity showed signs of steadying in August as output rose for the first time in six months, but the improvement was marginal and had little impact on stocks.

The IHS Markit/Nikkei Japan Flash PMI rose to 49.6 in August from a final 49.3 in July. More flash surveys are due from Europe and the United States later in the day.

The whole world seems to have hushed ahead of comments from Fed Chair Janet Yellen at the central bank's annual meeting in Jackson Hole on Friday. Investors still doubt the stars will align for a hike anytime soon, so a hawkish tone from Yellen would challenge that equanimity.

"Ever so slowly, the market does seem to be reluctantly acknowledging the chorus of senior Fed speakers who have suggested recently that a 2016 rate hike is still quite probable and September is 'live'," wrote analysts at ANZ in a note.

Of the 479 companies in the S&P 500 that have reported earnings, 71 percent have topped expectations, according to Thomson Reuters data. Earnings are currently showing a decline of 2.3 percent for the quarter.

In forex markets, the dollar slipped 0.15 percent to 94.381 against a basket of currencies .DXY. The index fell about 1.3 percent last week on what traders perceived as mixed signals from Fed officials.

The dollar drifted as low as 100.03 yen JPY= in early trade and spent much of the session hovering just above that psychological bulwark. The euro was a shade firmer at $1.1336 EUR=.

The New Zealand dollar blipped higher after the country's central bank forecast another 35 basis points in possible rate cuts, less than many investors had wagered on.

World stocks edged lower and the dollar strengthened on Monday on expectations the Federal Reserve will give a signal this week that it is gearing up to raise U.S. interest rates.

An upbeat assessment of the U.S. economy's strength from Fed Vice Chairman Stanley Fischer on Sunday was seen raising the prospect of Fed chair Janet Yellen flagging up a rate rise at a meeting with the world's central bankers on Friday.

The dollar index, which tracks the greenback against a basket of six major currencies, rose 0.2 percent to 94.718 .DXY, pulling away from a six-week low hit last week after minutes of the Fed's last policy meeting showed rate-setters split on when to hike.

"Fischer didn't necessarily state when the Fed has decided to hike rates, but his remarks seemed to be alluding that a rate hike might be round the corner," said Craig Erlam, a senior market analyst at OANDA.

European stocks fell 0.11 percent , having received a temporary boost in early trading by Syngenta after its proposed takeover by ChemChina was approved by U.S. regulators.

Asian stocks closed lower, while U.S. stock futures pointed to a weaker open for Wall Street shares.

Emerging stocks and currencies also fell broadly on Monday. MSCI's emerging equity index .MSCIEF slipped 0.6 percent to the lowest in more than 10 days after rallying for six straight weeks.

Investors are jittery about this week's gathering of central banking Jackson Hole, Wyoming on Thursday, with Yellen due to speak the following day.

Many emerging countries borrow heavily in U.S. dollars meaning an appreciation in the greenback makes it more expensive for them to service their debt.

Interest rate futures contracts indicate that the market is pricing in about 50/50 odds of a U.S. rate increase by the end of the year.

Oil prices fell on Monday as analysts said they doubted upcoming producer talks would rein in oversupply.

Soaring exports of refined products from China also pressured prices, as this was seen as the latest indicator of an ongoing global fuel glut, traders said.

Crude futures have risen almost $10 a barrel since early August on speculation that Saudi Arabia and other members of the OPEC will agree next month to a production freeze deal with non-OPEC producers led by Russia.

U.S. crude fell 2.7 percent to $47.20 after gaining 9 percent last week, rising for a second straight week.

Gold fell on Monday to its lowest in more than a week as the dollar strengthened, before recovering slightly. Overall, spot gold was down 0.37 percent at $1,336 an ounce, having hit a low of 1,331.35 an ounce at one stage.

Monday, 22 August 2016

The dollar extended gains against the yen and euro on Monday as U.S. Federal Reserve policymakers took an upbeat tone on the economy and expressed support for a near-term U.S. interest rate hike.

Expectations that the Bank of Japan would not rule out a deeper cut to negative interest rates also weighed on the yen and supported the dollar.

The dollar was up 0.5 percent at 100.760 yen, pulling further away from an 8-week low of 99.550 struck early last week.

The euro was down 0.3 percent at $1.1289 adding distance between $1.1366, its highest since June 24 reached on Thursday. The dollar index .DXY rose 0.4 percent to 94.843.

The market took an early cue from Fed Vice Chairman Stanley Fischer, who on Sunday gave a generally upbeat assessment of the U.S. economy's current strength, saying that the central bank is close to hitting its job and inflation targets.

"Fischer's comments had an impact on dollar/yen as he, along with (New York Fed President William) Dudley, is more influential than the other Fed district heads," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

"That said, dollar/yen has not risen much further as much of the momentum appears to be coming from profit taking in the yen, rather than outright buying of dollars."

The yen also sagged after the Sankei newspaper reported over the weekend that the BOJ will not rule out deepening a cut to negative rates, quoting Governor Haruhiko Kuroda.

The U.S. currency was already on the front foot on Friday after San Francisco Fed President John Williams said a rate hike in September should be in play.

The currency market has swayed back and forth over the past week on conflicting views towards U.S. monetary policy.

The greenback initially gained on hawkish comments from New York Fed President William Dudley and Atlanta Fed President Dennis Lockhart, but dollar bulls were disappointed after the July Fed policy meeting minutes suggested the central bank was not in a hurry to increase rates.

"Market attention will be squarely focused on U.S. Fed Chair Yellen's speech at Jackson Hole. We believe she may use the opportunity to signal the Federal Open Market Committee's growing confidence in the outlook for activity and inflation," wrote strategists at Barclays.

"Given the low market expectations for a September or December Fed rate hike, a repricing at the front end of the rates curve should drive a near-term rebound in the USD."

Federal funds futures on Friday suggested traders saw a 53.5 percent chance of a Fed rate hike this year, up from 48.8 percent on Thursday, CME Group's FedWatch program showed. Expectations for a rate hike in September were even lower, at around 20 percent.

Sterling was on the defensive after dropping 1 percent against the dollar on Friday on speculation that Britain could formally begin the process of leaving the European Union early next year.

The pound was down 0.1 percent at $1.3058 after being knocked away from a 2-week high of $1.3186 on Friday.

The Australian dollar slipped 0.4 percent to $0.7595 having touched a 2-week low of $0.7584. The New Zealand dollar shed 0.6 percent to $0.7228 .

The Aussie and kiwi extended losses from Friday, when ratings agency Moody's cut its outlook on Australian banks to negative, providing investors an impetus to sell both currencies.

The Federal Reserve is close to hitting its targets for full employment and 2 percent inflation, the Fed's No. 2 policymaker said on Sunday in comments that did not address when the U.S. central bank should next raise interest rates.

The Fed has been suggesting it could raise rates in 2016 since it tightened policy in December for the first time in nearly a decade, but investors have doubts the central bank will follow through on that guidance.

Fed Vice Chairman Stanley Fischer gave a generally upbeat assessment of the economy's current strength, saying the job market was close to full strength and still improving.

"We are close to our targets," Fischer said in prepared remarks for a conference in Aspen, Colorado.

Fischer's comments come ahead of a speech scheduled on Friday by Fed Chair Janet Yellen who is expected to give guidance on interest rate policy. New York Fed President William Dudley said last week a rate hike would be possible at the Fed's next policy meeting in September.

The Fed in June pointed to two rate increases in what remains of 2016 but investors see almost no chance of an increases at its September or November meetings. Prices for interest rate future contracts show investors see roughly 50/50 odds of an increase at the Fed's last meeting of the year in December.

Fischer, who has argued in the past that the Fed needed to be wary of being too slow in raising interest rates, made no such argument on Sunday.

At the same time, Fischer's comments were not inconsistent with that sort of view. He said this year's pace of job growth, while slower than that seen last year, was "more than enough" for the labour market to continue to improve.

"The behaviour of employment has been remarkably resilient," he said, adding that inflation outside of food and energy prices was "within hailing distance" of 2 percent, the Fed's target rate.

Friday, 19 August 2016

Asian stocks retreated on Friday as traders took profits from shares close to one-year highs, while the dollar edged up from a near eight-week low after some Federal Reserve officials reiterated the case for raising interest rates in coming months.

European stocks looked set for a similar soggy start, with spreadbetters expecting Britain's FTSE 100 .FTSE and Germany's DAX .GDAXI to open 0.2 percent lower, and France's CAC 40 .FCHI to be down 0.3 percent.

That would put it on track to end the week, during which it hit a 1-year high, 0.3 percent lower.

Japan's Nikkei .N225 swung between gains and losses, but settled up 0.4 percent at the close, down 2.2 percent for the week.

South Korea's Kospi .KS11 was flat, on track for a 0.3 percent weekly gain. Australian shares closed 0.3 percent higher, recording a 0.1 percent decline for the week.

China's CSI 300 index .CSI300 and the Shanghai Composite .SSEC slid about 0.4 percent, but were still up 1.7 percent and 1.4 percent for the week, respectively, on hopes the government will roll out more stimulus to meet economic growth targets.

U.S. stocks eked out gains on Thursday following upbeat earnings and forecasts from Wal-Mart and as higher oil lifted energy shares.

Markets have been left confused by mixed messages from the Fed, with hawkish comments from New York Fed President William Dudley and San Francisco Fed President John Williams clashing with the Fed's July meeting minutes this week saying more data is needed before interest rates can rise.

Investors are awaiting an annual meeting of central bankers from around the world in Jackson Hole, Wyoming, next week, in which Fed Chair Janet yellen is likely to cement expectations for a slow pace of rate increases.

"We might be seeing some profit taking in action," said Bernard Aw, market strategist at IG in Singapore.

"Investors would also want to wait for next Friday when Yellen will be speaking, hoping she may at least provide some clarity on the Fed’s view, given a confusing minutes report."

The dollar recovered on Friday following Williams' and Dudley's comments overnight, after falling to the lowest level since June 24 in response to the July minutes.

Dudley, who said earlier this week that the central bank could possibly hike rates in September, reinforced his hawkish message on Thursday.

Williams also signaled support for an interest rate hike in the coming months, warning that waiting too long could see the economy overheat. Williams does not have a vote on Fed policy this year, but his views are seen as influential due to his longstanding relationship with Yellen.

The dollar index, which tracks the greenback against a basket of six peers, rose 0.2 percent to 94.336. It is down 1.5 percent for the week.

The U.S. currency gained 0.3 percent to 100.21 yen It is still on track to lose 1 percent on the week.

The euro slipped 0.2 percent to $1.13345 EUR= after touching $1.1366 overnight, its highest since June 24. The common currency is headed for a gain of 1.6 percent this week.

Oil prices have surged this week on expectations of revived talks by key exporters to freeze output levels.

Global benchmark Brent crude touched an eight-week high of $51.14 on Friday, and was last trading up 0.3 percent at $51.06. That followed a gain of 2.1 percent on Thursday. It is poised to add 8.7 percent for the week.

U.S. crude CLc1, which rose as much as 3.4 percent on Thursday, set a fresh six-week high of $48.65. It was last up 0.7 percent at $48.61 a barrel.

Both benchmarks have risen more than 20 percent from a lowin early August, putting oil in a technical bull market.

The U.S. dollar was near an eight-week low against major currencies in the wake of minutes from the Federal Reserve's July meeting published Wednesday showing policymakers were unlikely to raise interest rates soon.

Strong recent U.S. jobs growth and a long-awaited return of middle-wage employment were two positive signs for the U.S. labor market, New York Fed president William Dudley said Thursday. That reinforced his comments on Wednesday suggesting the Fed could raise interest rates in September, given better economic data since its last meeting in July.

Key indexes on Wall Street were little changed as oil-related gains were offset by a drop in tech stocks. Strong gains in shares of Wal-Mart provided the biggest boost to the Dow and the S&P 500; the stock rose as much as 3.1 percent to $75.19, a more than 14-month high, after the retailer posted a better-than-expected quarterly profit.

"Yesterday's minutes didn't hold any major surprises for investors," said Thomas Wilson, Managing Director of Wealth Advisory at Brinker Capital, in Berwyn, Pennsylvania.

"The market has been Fed-driven so far, it is going through a phase where it will pivot from the Fed to more emphasis on companies growing their revenues."

Energy stocks provided the biggest sector boost. Brent traded at $50.88 a barrel, up 2 percent on the day. U.S. light crude oil CLc1 was up about 3 percent at $48.21.

Brent crude prices rose to their highest since July 4 as the world's biggest producers prepared to discuss a possible freeze in production levels.

Members of the Organization of the Petroleum Exporting Countries will meet on the sidelines of the International Energy Forum in Algeria on Sept. 26-28. However, analysts were doubtful on the prospects of an agreement.

Oil prices were also helped by a falling dollar .DXY, which slipped to its lowest against a basket of major currencies since June 24 as traders marked down the odds of an interest rate increase by the Fed.

"The market’s take on the FOMC minutes is to read them in a somewhat more dovish fashion on the view that the Fed seems too divided to raise rates anytime soon," said Alan Ruskin, global head of FX strategy at Deutsche Bank in New York.

Oil is priced in dollars, so oil becomes more valuable as the dollar's value falls.

U.S. Treasury yields slipped as fixed-income investors were also incredulous of the likelihood that the Fed would tighten monetary policy soon, despite Dudley's comments and the jobless claims data.

Thursday, 18 August 2016

Federal Reserve policymakers agree that more economic data is needed before raising interest rates, although some see a need to tighten policy soon, according to the minutes from the U.S. central bank's July 26-27 policy meeting.

The minutes, which were released on Wednesday, showed that members of the rate-setting Federal Open Market Committee were generally upbeat about the U.S. economic outlook and labor market.

"Some ... members anticipated that economic conditions would soon warrant taking another step in removing policy accommodation," the Fed said in the minutes.

Several Fed policymakers, however, said a slowdown in the future pace of hiring would argue against a near-term hike, and members of the FOMC said they wanted to "leave their policy options open."

The U.S. dollar strengthened after the release of the minutes, while U.S. stocks and prices of shorter-dated U.S. Treasuries pared losses. Fed funds futures showed little change in bets on when the Fed will lift rates, with investors still expecting the next rate increase to likely come in December.

"The minutes contained more concrete indications that a consensus to raise rates is slowly building," said Brian Dolan, head market strategist at Drivewealth in New Jersey.

The Fed raised rates in December for the first time in nearly a decade, but it has since kept rates unchanged amid financial market volatility, a global growth slowdown and tame U.S. inflation.

Investors had raised bets earlier this week for a rate increase this year after two Fed policymakers said the economic stars now appear to be aligning despite weak U.S. growth in the first half of 2016.

Seventeen Fed policymakers participated in the July meeting, 10 of whom had a vote. Of the broader group of policymakers, several expressed concern that low interest rates could hurt financial stability.

The minutes came a day after New York Fed President William Dudley said "it's possible" to raise rates at the Sept. 20-21 policy meeting and Atlanta Fed President Dennis Lockhart said a hike next month is in play.

The Fed also has policy meetings scheduled in early November and mid-December. Economists see the December meeting as the most likely time for a rate increase since it follows the U.S. presidential election, according to a Reuters poll last week.

Investors will now focus on next week's annual meeting of central bankers in Jackson Hole, Wyoming, a venue the Fed often uses to telegraph policy plans.

New York Fed President William Dudley said that as the U.S. labour market tightens and as evidence of rising wages builds, "we're edging closer towards the point in time where it will be appropriate I think to raise interest rates further."

Comments from Dudley, a permanent voter on policy and a close ally of Fed Chair Janet Yellen, also included an unusual warning on low bond yields and were seen as more hawkish than a cautious message last month.

Atlanta Federal Reserve Bank President Dennis Lockhart, seen as centrist, concurred saying he did not rule out a September hike - something markets have almost completely priced out.

Data released on Tuesday lent some support to their views, with U.S. industrial production and housing starts expanding in July, although consumer prices were unchanged from June, following two straight monthly increases of 0.2 percent.

Markets still only partly believe their comments, remembering that the Fed ended up keeping rates on hold in June even after Fed officials talked up the possibility of a rate hike in preceding weeks.

"Clearly the Fed seems to think the market's pricing of a September rate hike is too low. Today's minutes of the Fed's July policy meeting could be more hawkish than market expectations," said Tomoaki Shishido, fixed income strategist at Nomura Securities.

Yields on two-year notes briefly touched a near three-week high of 0.758 percent, but failed to reach the July peak of 0.778 percent, and were last at 0.750 percent.

Fed funds rate futures are pricing in a 50 percent chance of a rate rise by December, a small increase from earlier this week.

The comments pulled the dollar from seven-week lows hit just after the inflation data.

The dollar's index against a basket of six major currencies .DXY plunged to 94.426 on Tuesday, its lowest level since Britain voted to leave the European Union in June. It was last trading at 94.854, down almost 1 percent on the week.

The euro EUR=EBS was steady at $1.1275, after touching $1.1323 on Tuesday, the highest level since the Brexit vote.

The dollar strengthened 0.3 percent to 100.60 yen after falling to as low as 99.55, coming within sight of its 2-1/2-year trough of 99.00 set on June 24 after the British referendum.

"As the world economy is slowing down, many countries now need a cheaper currency to support share prices. The U.S. wants a cheaper dollar and so does China, leaving the yen taking the brunt," said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.

The British pound, which touched a five-week low against the dollar on Monday, inched down following gains of 1.3 percent on Tuesday. It also touched a three-year low of 87.245 pence per euro on Tuesday after UK inflation came in stronger than expected.

The data was the first in a run of July economic data that should show some of the initial impact of the Brexit vote on the economy.

The pound slipped 0.1 percent to $1.3033. Against the euro, it weakened 0.1 percent to 86.50 pence per euro .

The pound is bracing for UK unemployment data later in the day.

Oil prices slid from five-week highs on doubts that possible talks by producers to rein in a growing glut would be successful.

Wednesday, 17 August 2016

The Federal Reserve is raising expectations for an interest rate rise this year, even as early as next month, after two policymakers on Tuesday said the economic stars now appear to be aligning despite weak U.S. economic growth in the first half of 2016.

New York Fed President William Dudley said "it's possible" to raise rates at the Sept. 20-21 policy meeting given evidence of wage gains and a tighter labor market that could boost inflation, while Dennis Lockhart of the Atlanta Fed said a hike next month is "in play."

The comments, which prompted investors to boost bets on a rate hike, came nine days before the annual meeting of some of the world's top central bankers in Jackson Hole, Wyoming, a venue the Fed often uses to telegraph policy plans.

As June's shock UK vote to leave the European Union fades with little lasting effect on markets, the U.S. economy is bouncing back from a meager 1.0 percent growth rate in the first six months of the year. Employment surged in June and July, while on Tuesday data showed solid gains in industrial output and home building in the world's largest economy.

"We're edging closer toward the point in time where it will be appropriate I think to raise interest rates further," Dudley, a permanent voter on policy and a close ally of Fed Chair Janet Yellen, said on the Fox Business Network.

The central bank raised interest rates from near zero in December last year, its first monetary policy tightening in nearly a decade, but it has since kept its policy rate unchanged amid financial market volatility and stalled economic growth.

Speaking with reporters in Knoxville, Tennessee, Lockhart, a centrist on policy who does not vote on the Federal Open Market Committee this year, said he is not ruling out action in September. "If the meeting were today, I think the economic data would justify a serious discussion" of whether to raise rates now, he said, adding two rate hikes in 2016 is "conceivable."

Dudley's comments were taken as more confident in tone than a speech he gave just two weeks ago. In response, U.S. stock prices slid on Tuesday while interest rate futures markets priced in about an 18 percent chance of a September move by the Fed, up from 9.0 percent on Monday, while odds of a move by December rose to about even.

The Fed also has meetings in early November and in mid-December, which economists see as the most likely timing since it comes after the U.S. presidential election, according a Reuters poll last week.

Lockhart said he was not locked in to a particular date to hike but he cited ongoing job gains and "healthy" signs that inflation will pick up as possibly justifying a September move.

Asked about inflation, which has remained below a 2.0 percent target for years, Dudley said the question is whether there is enough economic growth to push up wages and, ultimately, inflation. "So far we seem to be on that trajectory and we'll have to see how it plays out in coming months," he said.

Asian shares rose to one-year highs, expanding their gains this year to 10 percent, supported by a jump in oil prices and investor expectations of an extended phase of easy monetary policy around the globe.

Oil prices hit one-month highs on Monday, gaining 10 percent or more in a three-day rally as speculation intensified over potential producer action to support prices amid a glut of crude.

Russian Energy Minister Alexander Novak said on Monday his country is consulting with Saudi Arabia and other producers to achieve oil market stability, bolstering hopes that oil producing nations could take action to stabilize prices.

The market started to rally on Thursday after Saudi energy minister said non-members and members of the Organization of the Petroleum Exporting Countries (OPEC) are to meet on the sidelines of the International Energy Forum, which groups producers and consumers, in Algeria from Sept. 26-28.

Brent crude LCOc1 traded at $48.04 a barrel, down 0.6 percent from Monday but still not far from Monday's high of $48.46, its highest since July 12.

Brent has gained more than 9 percent cumulatively since then. Since the start of August, it has risen more than 13 percent.

In currencies, the dollar slipped slightly but was broadly stuck in its recent trading ranges as market players look to the minutes from the Fed's July policy meeting, due on Wednesday.

"At that meeting, the Fed revised up its view on the labor market and said risks to the economy diminished. So markets will be keen to see what discussion they had on future rate hikes," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

Although Fed officials have said a rate hike is possible by the end of year, investors are not convinced the Fed can raise rates this year at all given the fragile global economic outlook. Its December rate hike was the first in almost a decade.

Most other countries are easing their monetary policies, with Britain, Australia and New Zealand cutting rates in recent weeks and Japan stepping up its purchasing of exchange-traded funds.

These measures pose a risk that any Fed tightening could strengthen the dollar to an uncomfortable level for U.S. companies and policymakers.

Fed funds futures are pricing in only about 50 percent chance of one rate hike by December.

The dollar's index against a basket of six major currencies stood at 95.51, down 0.1 percent on the day after having slipped 0.1 percent on Monday.

The euro EUR= fetched $1.1186, off last week's high of $1.1222.

The yen JPY= rose 0.6 percent to one-month high of 100.60 to the dollar.

The British pound slipped to near its three-decade low marked last month as traders brace for the first round of hard UK economic data on consumer and corporate reaction to June's vote for Britain to leave the European Union.

"The market is so bearish on sterling that if we see higher figures than expected, we could see a big short-cover rally in the pound," said Bart Wakabayashi, head of Hong Kong FX sales at State Street Global Markets.

The pound traded at $1.2887, having shed 2.5 percent so far this month and coming within a cent from its July 6 low of $1.2798.

Tuesday, 16 August 2016

The dollar fell across the board on Tuesday, falling a full yen to a one-month low against the Japanese currency and down against the commodity-linked currencies most associated with growth and greater risk-taking by investors worldwide.

The greenback has been under pressure for the past week as the perceived chances of a rise in U.S. interest rates this year took a knock from several batches of data and the tone of some Federal Reserve policymakers.

The trigger for its weakness overnight was a paper from San Francisco Fed President John Williams arguing that central banks might have to raise inflation targets, focus more on growth and back much looser fiscal policy in future.

To market ears, that all added up to a strong argument for keeping the Fed's rates unchanged for the foreseeable future and the dollar fell 1 percent against yen and around half a percent against the euro as Asian and European markets came back online.

"The Williams paper yesterday was pretty dovish, so people are selling dollars. Dollar yields are lower pretty much across the curve since the release," said Citi strategist Josh O'Byrne.

Speculation of further aggressive monetary easing by Tokyo that would weaken the yen was quelled by last month's Bank of Japan meeting, and speculation on the chances of the government launching direct intervention in the FX market has also eased.

"There is this feeling that Japan may not have that much left up their sleeve and the Fed does seem to be backing off," said O'Byrne.

"The Japanese have been surprisingly quiet and people in general are talking about (intervention) a lot less. Verbal intervention really stepped up when we were seeing fast moves in the yen, and this has been more of a grind, so it's harder for them to argue that there have been disruptive markets."

The dollar traded as low as 100.15 yen, its lowest since the aftermath of Britain's vote in June to leave the European Union. It weakened to a 7-week low of $1.1258 per euro EUR=, and by 0.5 and 0.7 percent respectively against the Australian AUD= and New Zealand dollars.

Against a basket of six major currencies, it lost 0.6 percent to 95.051

"The dollar is being weighed on by the limited appetite for Fed trades, and this strength in emerging markets and the commodities currencies," said Stephen Gallo, a strategist with Canada's BMO in London.

The markets will look to U.S. data later in the day including consumer prices, housing starts and industrial output for another chance to gauge the health of the economy.

The dollar will probably fall further against the yen over the next few months, with the yen supported by factors such as Japan's rising current account surplus, said Heng Koon How, senior FX investment strategist for Credit Suisse.

"Key risk to our view for more yen strength is of course more aggressive easing by the Bank of Japan when they next meet," said Heng, who expects the dollar to be trading at 96 yen three months from now.

"But so far this year, they have disappointed and failed to turn around sentiment," he added.

Wall Street stocks rose to record highs on Monday, boosted by expectations for continued monetary policy easing around the globe and a jump in oil prices on speculation the world's top producers may be open to cutting output.

A strong monthly jobs report on Aug. 5 boosted optimism about the U.S. economy, driving all three major indexes to close at record levels last Thursday for the first time since 1999.

The S&P 500 index .SPX has notched 13 record intraday highs since July, including Monday's.

"Our sense is that we're still in this Goldilocks period where it's a sweet spot for equities and that will not change probably until the next rate hike," said Mike Bailey, director of research at FBB Capital Partners.

The Federal Reserve releases on Wednesday minutes of its July policy meeting that could provide clues on the U.S. central bank's plans to raise rates and its view on the health of the economy.

The expected easing posture of central banks globally suggested to investors that the Fed may be slower to raise the nation's short-term interest rates and that could be reflected in the minutes, analysts said.

"There’s growing realization that the events in foreign economies have far more impact on U.S. rates than previously accepted," said Michael Matousek, head trader at U.S. Global Investors Inc in San Antonio, citing a research note. "People are thinking overseas troubles are going to keep rates lower and that’s been keeping an underlying bid to the (stock) market."

The jump in U.S. equities helped underpin markets in London .FTSE and Frankfurt .GDAXI, which added to gains and were up 0.36 percent and 0.24 percent respectively. The pan-European FTSE 300 .FTEU3 edged up 0.02 percent.

Chinese equity markets had strong gains as the blue-chip CSI300 Index .CSI300 jumped 3 percent to a seven-month high amid speculation more stimulus would be forthcoming from Beijing after weaker-than-expected July data.

A subdued second-quarter economic reading in Japan left the Nikkei .N225 down 0.3 percent and suggested the Bank of Japan could again ease monetary policy soon.

MSCI's all-world equity index rose 0.27 percent.

The expectation for continued loose monetary policy and appetite for stocks pushed U.S. Treasury prices down, with benchmark yields rising from near two-week lows. Analysts said that hedging linked to this week's corporate bond supply also spurred selling in Treasuries.

Yields on British 10-year gilts touched record lows on Monday, falling to 0.503 percent. They have more than halved since Britain's surprise vote in June to exit the European Union, having been up at 1.39 percent just before it.

Reduced expectations for Fed policy moves also hurt the U.S. dollar, which has fallen against a basket of currencies in four of the last five trading sessions.

The dollar index .DXY, which tracks the greenback against six major world rivals, fell 0.12 percent to 95.604.

"As it stands now, market participants see a less than fifty-fifty chance of rates rising by December. The dollar will continue to struggle until that chance rises meaningfully," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

Brent crude futures rose $1.25 to $48.22 a barrel, while U.S. crude rose to $45.70.